A Volkswagen joint venture in China is buying green car credits from Tesla to help stay within local environmental rules, according to a Reuters report. The deal, the first of its kind to be reported between the two companies in China, highlights the scale of the task VW faces to transform its huge petrol carmaking business into an electric vehicles specialist to rival Tesla. The deal was confirmed by three sources. Shares in Volkswagen, the world’s second-biggest carmaker, have soared this year as investors warm to the firm’s plans to go electric. But in China and other countries the vast German company is still heavily reliant on traditional internal combustion engine vehicles. China is the world’s biggest market for cars and more than 25m vehicles were sold there last year. The country runs a credit system to encourage carmakers to work towards a cleaner future by, for example, improving fuel efficiency or making more electric cars. Manufacturers of less-polluting vehicles are awarded green credits that can be offset against negative credits for producing more-polluting vehicles. The credits can also be bought and sold to ensure compliance with overall targets, though trade is usually between companies that are linked by a major stakeholder. Tesla has previously sold credits to Fiat Chrysler, now part of Stellantis. Fiat Chrysler paid hundreds of millions of euros to “pool” its dirtier cars with Tesla’s zero-emission vehicles to avoid steep fines. Now, to help meet increasingly tough targets in China, VW’s joint venture with the state-owned Chinese automaker FAW has also agreed to buy credits from Tesla, said Reuters. Volkswagen declined to comment on the deal. It said in a statement it was “strategically targeting to be self-compliant” with rules in China, but that if required it would buy credits. The deal in effect involves VW, the biggest foreign carmaker in China, subsidising a rival while the German group ramps up production of electric vehicles. Its ventures in China plan to roll out five electric ID series models this year. Tesla, which last year generated $1.58bn (£1.14bn) in revenue from selling its regulatory credits according to a regulatory filing, did not respond to requests for comment. FAW-Volkswagen sold more than 2m cars last year. The business and another Volkswagen venture in China – with SAIC Motor – were among the carmakers that generated the most negative credits in the country in 2019, according to data from China’s Ministry of Industry and Information Technology. The companies’ internal combustion engine saloons and SUVs have so far proved far more popular in China than their electric vehicles.